The yen has outperformed again as stock markets fell back in Asia. The pound also took a hit, although subsequently pared losses, after the BoE unexpectedly announced an intra-meeting emergency rate cut of 50 bp, which put the repo rate at 0.25%. Cable fell by just over 90 pips in posting a one-week low at 1.2845 before recouping to around 1.2900. EUR-GBP surged to a five-moth high at 0.8841 before ebbing back to the upper 0.8700s, and GBP-JPY dove to a 134.15 low before about-turning and recouping to near 135.50. Markets had been factoring in growing odds for a BoE move, and Andrew Bailey, who will take over the reigns of governorship from Mark Carney next Monday, had recently suggested that an intra-meeting cut was a possibility. Markets are also expecting easing measures from other central banks, including a further move from the Fed, and measures from the ECB, which helps explain the lack of follow-through selling of the pound. Elsewhere, the dollar showed broad weakness. USD-JPY is showing a 0.5% decline at prevailing levels near 105.00, although having recovered from the Tokyo low at 104.11. EUR-USD lifted to a 1.1366 high before ebbing back to the 1.1330 area, remaining up by a net 0.5%. The dollar bloc currencies have been trading with comparative steadiness, showing modest gains versus the U.S. dollar while showing modest declines against the yen. Oil prices have found a tentative footing after Monday's worst-in-29-years 30%-plus rout amid signs that U.S. producers are cutting production due to viability issues. Concerns remain about economic impact of the coronavirus. South Korea has reported a fresh surge in confirmed cases, spoiling a recent downward trend, while the virus appears to be spreading exponentially in the U.S. and Europe. There are now over 1,000 confirmed cases in the U.S., and 19 states have now declared a state of emergency. Italy remains in lockdown until at leat April 3rd. We expect more risk-off positioning is to come.

[EUR, USD]EUR-USD lifted to a 1.1366 high before ebbing back to the 1.1330 area, remaining up by a net 0.5%. The pair has remained within the range seen yesterday, and below the 13-month high seen on Monday at 1.1493. The pair remains up by over 5% from the 35-month low since on February 20th at 1.0777. The dollar over this time was mostly in decline, driven by the fact that U.S. Treasury yields have much greater scope to fall than Bund yields amid a risk-off environment, reflected by sharply narrowing Treasury versus Bund yield spreads. This undermined the dollar, while recent euro gains in the common currency have also been a consequence of risk-off positioning. The euro had been a popular funding currency of long global equity positions, or a short in forex overlay managers portfolios, due to the ECB's -0.50% base rate and the deep liquidity of the currency. These positions have been unwinding at pace in recent weeks. We still view EUR-USD as being amid a sizeable rotation higher to a new trading band, and don't view this as the beginning of a long-term bull trend, which should become apparent once markets focus back in on fundamentals. There is little reason to believe that Eurozone will be able to better weather the consequences of the COVID-19 virus than the U.S. (the reverse has been true thus far, given the sizeable outbreak in Italy, and extreme measures to quell the spread of the virus). The ECB is likely to announce further easing measures at its board meeting tomorrow.

[USD, JPY]The yen has outperformed again as stock markets fell back in Asia. USD-JPY is showing a 0.5% decline at prevailing levels near 105.00, although having recovered from the Tokyo low at 104.11. The unexpected intra-meeting emerging rage cut by the BoE, announced at the start of the London interbank sessions, gave market a boost, which saw the yen come off the boil. Concerns about the economic impact of the coronavirus are acute, as evidenced by the BoE's move. South Korea has reported a fresh surge in confirmed cases, spoiling a recent downward trend, while the virus appears to be spreading exponentially in the U.S. and Europe. There are now over 1,000 confirmed cases in the U.S., and 19 states have now declared a state of emergency. Italy remains in lockdown until at leat April 3rd. We expect more risk-off positioning is to come, which should keep the yen in an overall up-trend.

[GBP, USD]The pound took a hit, although subsequently pared losses, after the BoE unexpectedly announced an intra-meeting emergency rate cut of 50 bp, which put the repo rate at 0.25%. Cable fell by just over 90 pips in posting a one-week low at 1.2845 before recouping to around 1.2900. EUR-GBP surged to a five-moth high at 0.8841 before ebbing back to the upper 0.8700s, and GBP-JPY dove to a 134.15 low before about-turning and recouping to near 135.50. Markets had been factoring in growing odds for a BoE move, and Andrew Bailey, who will take over the reigns of governorship from Mark Carney next Monday, had recently suggested that an intra-meeting cut was a possibility. Markets are also expecting easing measures from other central banks, including a further move from the Fed, and measures from the ECB, which helps explain the lack of follow-through selling of the pound. The BoE stated that "Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months." The BoE also introduced a new term funding scheme for small businesses, offering four-year funding over the next 12 months, while the central bank’s Financial Policy Committee also lowered the counter-cyclical capital buffer for banks to zero from 1%.

[USD, CHF]EUR-CHF recouped to around the 1.0600 level after printing a five-year low at 1.0509 on Monday, which was a product of safe haven demand for the Swiss currency amid heightened concerns about the global economic disruptions being caused by efforts to contain the COVID-19 virus. Promises by global leaders for coordinated fiscal and monetary policy stimulus, along with news that the new cases count of the coronavirus in China have continued to decline, have helped settle markets, seeing the franc lose some of its haven premium. The U.S. in January added Switzerland to its list of currency manipulators. The move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

[USD, CAD]USD-CAD has ebbed back under 1.3700 after printing a four-year high at 1.3797 yesterday. Oil prices have found a tentative footing after Monday's worst-in-29-years 30%-plus rout amid signs that U.S. producers are cutting production due to viability issues. This, along with the BoE's unexpected 50 bp rate cut, helped shore-up the Canadian currency, which has been acutely sensitive to the global phase of risk aversion in markets. The Canadian dollar will likely remain subject to near-term volatility and overall underperformance as long as the coronavirus contagion remains in a state of increasing spread.